The winter of our discontent in CTRM
Its been a tough winter. No, the weather hasn’t been particularly bad; in fact in Houston, its been downright balmy most of the time compared to winters past. This winter has been particularly difficult is because the CTRM markets have gone a bit sideways, having been driven there by the collapse of the oil markets – thanks in no small part to the Saudis and OPEC (who misguidedly believe they can put the shale genie back in the bottle), and a weakening global economy, particularly in places like China and the other AsiaPac countries that had been the engines driving increased demand for commodities over the last decade. Adding a very strong dollar to mix (thanks to the US Fed indicating they intended to raise rates at some point this year) and you have not only an oil market taking a dive, but a wider commodity market that appears to be searching for new low prices every day.
Given these conditions, its not surprising that we are consistently hearing from CTRM vendors that software deals that had been pending with companies that had any significant oil exposure are evaporating seemingly overnight as budgets are slashed almost as fast as Bakken drilling rigs are being stacked. In fact, almost across the board – whether its oil, copper, steel, grains or whatever – the CTRM market has not been a particularly fun place to be these last few months as traders and merchants absorb the impacts of falling prices and recalibrate their budgets in light of the gloomy news.
Still, as they say in Texas, this isn’t our first rodeo. The markets have tanked before and despite all the emotions otherwise, they will come back. Even now, though commodity producers may be hurting, traders are starting to look at commodities in a new light, as sharp declines usually result in an extended period of significant price volatility as the markets try to recenter themselves. Meaning, traders, drawn back to, or deeper into, the market by the siren song of volatility, will start spending for software to help them navigate (and make profit) in the stormy markets. Wholesale commodity consumers will also look at the swinging prices as a growing threat and start to more actively manage their price risks again…and once again, start looking for CTRM solutions.
Its quite possible that the guys in OPEC will start to rethink their strategy of declaring war on US shale producers. While Saudi Arabia can endure $40 oil for a year or more, most of the others that make-up the cartel aren’t so lucky. Countries like Venezuela and Angola don’t have that same luxury and are no doubt pushing the Saudi’s to cut production at least enough to bring the price back up to the $60’s. If that happens, it may not necessary be the good old days for oil producers, but it will probably be enough to keep moving ahead without constantly whittling away budgets in a falling market.
Its also likely, if not probable, that the Fed will rethink a near-term rate increase and the dollar will start to fall back from its current highs. While the US growth numbers over the last couple of quarters have been good, once the impact of slowing exports and increasing unemployment due to layoffs in energy start to hit, the Fed may decide a strong dollar is not the best thing right now.
And who knows, maybe the Chinese will surprise with a bit stronger economic news that they have been putting out lately. If so, the increased demand for all commodities could shore up the markets and bring a reversal in fortunes.
Regardless of what may come over the next few months, there are always some silver linings to the clouds…if you’re a gas producer, even though your market isn’t the best, it certainly looks better than those oil guys right now….and its also become damn cheap to fill-up my car.
Yeah, its been a few dark weeks in the CTRM markets, but spring will be here soon enough.
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